1. What is a Short Rate Calculator?

Definition: This calculator determines the refund amount when an insurance policy is cancelled before its expiration date using the short rate method.

Purpose: It helps policyholders and insurance professionals in Alberta calculate cancellation refunds according to standard short rate practices.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• Refund — Amount returned to policyholder (CAD)
• Premium — Total premium paid (CAD)
• Short Rate Factor — Cancellation penalty (typically 0.1-0.2)

Explanation: The short rate factor represents the penalty percentage retained by the insurer for early cancellation.

3. Importance of Short Rate Calculation

Details: Proper calculation ensures fair refunds while compensating insurers for administrative costs and lost premium potential.

4. Using the Calculator

Tips: Enter the total premium in CAD and short rate factor (default 0.1). The short rate factor must be between 0 and 1.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical short rate factor in Alberta?
A: Most insurers use 10-20% (0.1-0.2), but this can vary by company and policy type.

Q2: When would I use this calculator?
A: When cancelling auto, home, or business insurance policies before their expiration date.

Q3: Is short rate the same as pro-rata cancellation?
A: No, short rate includes a penalty while pro-rata is strictly time-based without penalty.

Q4: Can the short rate factor be more than 20%?
A: It's uncommon but possible for certain high-risk policies or special circumstances.

Q5: Where can I find my policy's short rate factor?
A: Check your insurance policy documents or contact your insurance provider directly.